American Academy of Actuaries
Essential Elements Making complex public policy issues clear
JUNE 2018
Securing Social Security Social Security – which provides benefits to about 62 million retirees, survivors of deceased workers, disabled workers, and dependents – is the nation’s largest social insurance program. Social Security currently receives more in payroll taxes and interest income than it pays out in benefits, but that will shift as more Americans retire and continue to live longer. The latest Social Security Trustees Report estimates that the surplus assets generated over the past 30 years will be depleted by 2034, at which point only 77 percent of the promised benefits can be paid without a change in the promised benefits or additional financing. The program’s long-term solvency challenge stems from a declining ratio of workers per Social Security beneficiary. Social Security benefits primarily are funded through payroll taxes of 12.4 percent, split evenly between workers and employers. Americans are having fewer children and living longer than in the past, and those trends will be coupled with baby boomers retiring in large numbers over the next 20 years. In short, the U.S. population is changing. Social Security is supported by two trust funds – the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) funds. The DI trust fund is not projected to
be exhausted until 2032, according to the latest trustees report. While in better shape, the OASI trust fund that pays benefits to retirees and their dependents will run out of surplus assets in 2034. The combined OASDI trust fund totaled $2.89 trillion at the end of 2017 and now faces large annual withdrawals until depleted in 2034. Options to provide adequate long-term financing for Social Security involve revenue increases, benefit cuts, or some combination of both. Here are several approaches.
Raising payroll taxes or increasing/ eliminating its cap Today, workers and employers each contribute payroll taxes of 6.2 percent that fund Social Security. Some have called for raising that rate to 7.5 percent or some other level. Additionally, the payroll tax is capped at a maximum income amount – $128,400 in 2018 – and some have proposed lifting the maximum cap to $250,000 annually, other levels, or eliminating it entirely to raise additional revenues for Social Security. Increasing Social Security income taxes Social Security benefits are partially taxed on a sliding scale for singles with incomes currently above $25,000 annually and married couples
SOCIAL SECURITY AT A GLANCE IN 2017 Beneficiaries: •4 5 million retired workers and dependents • 6 million survivors of deceased workers •1 0 million disabled workers and dependents Payroll taxpayers: 174 million Expenditures: $952 billion Income: •9 11 billion from payroll taxes and other income •$ 85 billion in interest earnings Trust fund assets: $2.89 trillion Projected trust fund depletion date: 2034
Source: 2018 Social Security Trustees report
ESSENTIAL ELEMENTS: Securing Social Security American Academy of Actuaries 1850 M Street NW • Suite 300 • Washington, DC 20036 • 202.223.8196 • www.actuary.org Copyright 2018 American Academy of Actuaries. All rights reserved.
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